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The Bank of England lowered its key interest rate to a historic low 09.08.2016 at 15:31

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the Bank of England lowered its key interest rate to its lowest level in history — 0,25%. He also increased the volume of bond buyback to £435 billion. Thus the regulator is trying to soften the consequences of Brexit. But many economists believe that the Ultrasoft monetary policy will have no effect.

As analysts expected, the Bank of England lowered its key interest rate from 0.5% to 0.25%. The previous decrease occurred in March 2009. In addition, the regulator increased the total volume of the program of redemption of government bonds from £375 billion to £435 billion £10 billion will be spent on the purchase of corporate debt securities. Commercial banks are expected to allocate up to £100 billion on increased lending business.

the Rate will be reduced subject to the decision of the majority of participants in the referendum in favour of UK leaving the EU (Brexit).

After a referendum on the United Kingdom from the EU exchange rate has fallen, and growth prospects in the short and medium term have diminished noticeably. Recent studies of business activity, confidence and optimism indicate that the GDP of the United Kingdom is likely to show modest growth in the second half of this year," said the Bank of England.

Business activity in July was indeed at the lowest level in several years. PMI in the service sector showed the lowest value in 2009, down from June's 52.3 to paragraph 47.4 (readings below 50 points indicates a decline on the growth in the sector). PMI in the manufacturing sector fell to 48.2 from 52.4 points in June. This is the minimum since February 2013.

After the decision of the British to withdraw from the EU fell that the growth rate of GDP will decline already this year, although the recession no one predicts. The national Institute of economic and social research of great Britain considers, for example, that the economy will grow 1.7 percent in 2016 and 1 percent in 2017. the Bank of England 4 August downgraded the forecast for 2017 from 2.3 to 0.8 percent in 2018, from 2.3 to 1.8%.

However, in the UK plenty of skeptics who believe that a new round of monetary easing will not bring the desired result. The Guardian published a letter 35 British economists, in which they justify the futility and even harmfulness of the actions of the regulator.

They pointed out that loose monetary policy lasts for seven years and has not yet yielded the desired effect (the key rate of the Bank of England is at a level below 2% per annum since January 2009). Indeed, if you look at statistics, after two years of recession (2008-2009), the growth rate of UK GDP only once was quite high — in 2014, the economy grew by 3.1%, according to Eurostat. Last year GDP grew by 2.2% and in other years the growth rate was 1.3–to 1.9%.

"Further reduction in interest rates would not have a significant impact on the UK economy. In addition, further expansion of the QE program is the wrong solution for today's economic problems," the letter reads.

Economists emphasize that the purchase of assets were current at the time of the crisis, when banks needed additional liquidity. Now the new infusion will lead only to growth of debts.

According to Eurostat, over the last 10 years Britain has never put together a budget with a surplus. The minimum size of the deficit at 2.9% of GDP was recorded in 2006, the maximum (10.7% of GDP) in 2009. Last year the deficit amounted to 4.4%.

of Course, the deficit is covered by borrowing. For the same 10 years the national debt has increased more than two times — from 41.5% of GDP in 2005 to 89.2% of GDP in 2015. last year the United Kingdom was £2,266 trillion. And that's just national debt, but comparable amounts owed and the corporate sector, and households.

the Economists of the "group of 35" note also that a new round of easing monetary policy will increase inequality due to inflation in asset prices.

Analysts of investment companies also point to the risk of accelerating inflation because of monetary policy easing and Brexit, as the pound will drop significantly. From the beginning, it has already fallen about 9% against the US dollar after the Bank of England on interest rates has already lost about 1.5%.

it Should be noted that in July, his first after a Brexit a meeting of the British regulator did not change the parameters of monetary policy. Similarly, did the other leading Central banks of the world — the European Central Bank, the Bank of Japan, Federal reserve and the Bank of Russia.

the Pause in decision making was related to the fact that a set of tools to react to new risks very poor. Almost all developed countries for years conducted a moderate policy, with low (and some negative) rates and the programme of asset purchases (quantitative easing, QE).

in addition, all waiting for the fed decision, which, in contrast to regulators, Europe, UK, Japan, was completed three rounds of QE and beginning gradually to raise the key rate. But in late July, the fed left rates unchanged and probably will now delay the increase until the end of the year.

Arthur Nawrocki, an analyst at the securities market fixed income, "IK VELES Capital", believes that the fed remains largely hostage to external factors.

"His attitude lately is more dependent on the performance of financial markets than macroeconomic conditions in the country. Over the past year, the monetary authorities have changed their view on the state of the economy several times," he says.

According to him, the markets are set up to maintain monetary parameters to the end of the year, as indicated by the low yields of Treasury bonds and derivative markets, despite the rally in risk assets. "In addition, history shows that during presidential elections the monetary conversion was carried out very rarely," emphasizes Arthur Nawrocki.

as for the ECB, the analyst assumes that the regulator at the next meeting try to meet the expectations of investors and hint at additional stimulus, but their introduction will be postponed to a later date.

In turn Andrey Shenk, analyst at Alfa-Capital, said that at the next meeting in the autumn, the ECB and the Bank of Japan may expand its incentive program. But only if it considers that the current volume is insufficient to achieve the objectives.

"the fed likely will not rush to raise rates, and probably we'll see one rate hike at the end of this year, and even likely, that growth can only happen next year", — predicts Andrew Schenk.

Arthur Nawrocki notes that because of the program of monetary stimulus do not give the desired effect, and money often fall on the financial markets, but not in the real sector, more and more people are talking about "helicopter money".

By "helicopter money" today refers to the distribution of money to households or companies, to boost consumption and investment. This advice is contained in letter 35 British economists.

"Is a policy aimed at inflating bubbles and increased household debt, the Treasury and the Bank should operate to directly stimulate aggregate demand in the real economy," they write.

is Printed money can be used to Finance investment in infrastructure projects, increasing revenues of enterprises and population and increase of productive assets of the public sector. In addition, the money can be used for tax cuts or direct payments to households.

note that this approach is categorically rejected by the Bank of Russia. The domestic regulator said that only low inflation (4% at end-2017), market reforms and reduce the budget deficit (this year it is projected at 3.2% of GDP) can provide sustainable economic growth. Any programme of quantitative easing, or monetary financing of consumption and investment are considered harmful, but the initiators of such ideas is accused at least of incompetence.

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